Clients see a finite amount of value in senior-level talent on IT consulting engagements, according to a recently released study conducted by the University of Michigan's Ross School of Business. Instead, buyers of consulting say industry and process knowledge trumps work experience.
According to the results of a detailed survey of more than 50 companies, which was conducted jointly with Clarkston Consulting in the fall of 2010, buyers of IT consulting services said they'd be willing to pay a premium for experience—but only up to about eight years of work history. After that, clients saw no additional value and were not willing to pay a higher hourly rate for more senior consultants' time.
Clients drew a line between experience and specialized industry/process knowledge. Consulting clients were asked to rank the importance and their personal satisfaction of various factors of their consulting purchase decisions. Industry/process knowledge ranked highest for both IT and management consultants.
Rather than pitching clients on simply the sheer number of years your consultants have been in the profession, the findings of this study suggest you'd be better served focusing on your staff's specialized and deep industry insights.
Even for an industry-centric firm like Clarkston, one of the study's biggest takeaways was a need to build out a more advanced training curriculum to support industry specialization in the firm's two verticals: consumer products and life sciences. Focusing on what clients want—and are willing to pay for— is always a good strategy. However, it doesn't change the other somewhat frightening takeaway: the lack of value clients perceive from IT consultants with more than eight years of experience.
The reason this is such an alarming finding is that IT consultants' salaries don't max out at that level of experience. In fact, those with eight-plus years of experience tend to be at or near partner/vice president status, the level with the highest compensation levels. If these findings are universal—and not an anomaly based on the sample of consulting buyers surveyed—it could pose a real challenge to the basic business model of most IT consulting firms.
While the results of one study are not enough to upend the consulting marketplace, it does suggest that further study should be conducted. Assuming that the results of this research have indeed tapped into a broad market truth, how should firms react?
Option 1: Industry Focus
Take Clarkston's lead and focus around your strongest vertical(s). And then invest heavily in training to continually build true experts in your chosen fields. Clients will pay for deep expertise, regardless of years of experience.
Option 2: Re-educate
Firm leaders should see this as yet another sign of the broader commoditization perception of the IT consulting marketplace—and fight back. One interpretation of the findings is that there's an opportunity here to better educate clients on the value of IT consulting experience. Veteran consultants are better positioned to know what pitfalls lay ahead and how to avoid them. They may also bring broader life experiences than their younger counterparts and therefore can bring unique perspectives to client problems. And that extra value requires a higher-level of investment by the client.
Option 3: Re-adjust Leverage Models
While no consulting firm can go without partners, clients may be saying that they don't think they need as much partner time per engagement as firms currently allocate. By putting more of the responsibility on directors/managers, you can maximize clients' willingness to pay the premium for their time and better leverage partner's supervisory time across more projects.
Option 4: Re-adjust Staffing Models
Over time, you can work to become less top heavy by replacing fewer partners, electing/promoting smaller partner classes each year, and creating non-partner tracks for senior talent. Some managers/directors may want to stay client focused, and not necessarily take on the internal management duties of partnership. Others may love their job, but have family obligations that are competing with their career goals. Being flexible, especially with those just below the partner level, can go a long way toward retaining talent (even on a part-time basis) without creating the value gap quantified by the research. Remember, there's no law that says every consultant has to be on a partner track.
Option 5: Build an IT/Management Consulting Hybrid Model
The apparent disconnect between perceived value and experience did not exist when clients were asked about management consulting. Using a management consultant with five years of experience as a baseline, survey respondents said they'd be willing to pay $134 per hour more, on average, for a management consultant with 10 years of experience and $185 per hour more for a management consultant with 15 years of experience.
So, one way to overcome this dilemma is to train your more seasoned IT consultants to become management consultants. The IT strategy space, for one, is ripe for this kind of talent and experience.
The hybrid model is, in part, what's driven the recent success of Clarkston Consulting, which is experiencing tremendous growth as it approaches $100 million in annual revenue. "As our IT consultants grow inside our firm, they become industry specialists and many are very capable of offering IT and management consulting advice," says Neil Nelson, Clarkston's President and co-founder.
Size Doesn't Matter
One interesting takeaway from the study is that IT consulting buyers do not put a premium on brand.Unlike their answers regarding management consulting firm brands— where buyers said they'd expect to pay a premium for a consultant from big-branded firms like Deloitte ($86 per hour more) or McKinsey & Company consultants ($95 per hour more) compared to lesser-known middle-market management consulting firms—there is no perceived brand premium for IT consultants.
In fact, the opposite was true; clients expected to receive a significant discount if they hired a lesser-known IT consultancy.
Overall, buyers of IT consulting rank "hourly billing rate" as the third most important factor in their buying decisions (compared to a distant fifth when buying management consulting), further illustrating the increasingly competitive and commoditized nature of IT consulting.
—Jess Scheer
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